The Obamacare Ruling's Impact on the States

Joe Raedle/Getty Images

Joe Raedle/Getty Images

Since its inception, the Patient Protection and Affordable Care Act (ACA), commonly known as “Obamacare,” has been one of the most contentious policies implemented in American history. Opposition to the law has since become a cornerstone of Republican electoral campaigns and greatly contributed to their dramatic upset in 2016. Despite their near total control of government, however, conservative lawmakers have been unable to fulfill their perennial promises to fully repeal the law. In a stroke of recent good fortune for Republicans, on Dec. 14 Texas judge Reed O’Connor took up the challenge and single-handedly ruled that the entirety of President Obama’s signature health-care statute is unconstitutional. Made by a justice with a history of favorable decisions for litigious conservative causes, the ruling has been accused of political bias and decried as making a “mockery of the rule of law and basic principles of democracy” by both liberal and conservative legal scholars alike.

Based on arguments made by a coalition of twenty conservative states supported by the Trump Administration, the decision asserts that without the individual mandate provision Obamacare and its regulations, specifically those prohibiting the denial of coverage based on pre-existing medical conditions, could not stand constitutional muster. Cited as an “essential provision” of the law, the individual mandate, which enabled the federal government to levy a 2.5 percent tax on the incomes of those who remained uninsured, was repealed by the 2017 Tax Cuts and Jobs Act enacted by Republican lawmakers. As a result, and in an unorthodox schism with the judicial doctrine of severability, the idea that a statute is to remain in vigor should an individual aspect of it be struck down, O’Connor ruled that this “removal of a key component of the ACA” rendered the law without effective constitutional standing.

Key Provisions of the Affordable Care Act

Ubiquitous and poorly understood by the American public, the ACA is a slew of federal regulations affecting health care provision in the United States. Designed to expand and improve healthcare coverage, the law as amended imposes new dicta on most insurance companies mandating, among other things, that they provide ten essential health benefits (e.g., preventive care and emergency room visits) and prohibiting them from denying coverage based on preexisting conditions (e.g. cancer and diabetes). Furthermore, it created a federal insurance marketplace, a model later adopted by the various states, in order to facilitate the process by offering ostensibly affordable health insurance packages. Obamacare also expanded upon existing insurance programs by allowing those under the age of twenty-six to remain on family plans, by subsidizing the cost of insurance premiums, and by providing free prescription drugs to certain Medicare beneficiaries.

In order to finance the ambitious policy, the ACA relies on a mix of Medicare spending cuts (estimated at nearly $750 billion over a decade) and a plethora of new taxes on diverse sources. While ancillary excise taxes such as that of 10 percent levied on indoor tanning salons (a probable source of the President’s vehement opposition to the statute) certainly contribute, the bulk of expenses are paid for by taxes levied against individuals and employers. The imposition of redistributive taxes on the wealthy, such as a 0.9 percent high income (over $200,000) tax and a 3.8 percent capital gains surtax on high-income earners as well as fees for businesses employing more than fifty employees that do not provide insurance, account for a large portion of tax revenues. Finally, representing a smaller share of receipts but a much higher cost in the public conscience, the individual mandate remains a significant source of income, once estimated to generate $55 billion by 2025, accounting for 5.5 to 6 percent of Obamacare tax revenues over the next decade.

 Obamacare, Medicaid, and the Federal System

The final and most significant pillar of the ACA is the expansion of the Medicaid program to cover non-disabled childless adults earning up to 133 percent (by using a modified adjusted gross income threshold the effective rate is 138 percent) of the federal poverty line (roughly $16,000). Established in 1965, Medicaid is a joint state-federal social program providing affordable health insurance to qualified low-income persons (mainly families, pregnant women, and individuals with disabilities). The program enables states to create socialized healthcare schemes that adhere to federal guidelines and receive reimbursements from the federal government covering a statutorily defined percentage of the costs (current subsidies are between 50 and 76.39 percent). The initially conceived mandatory expansion of this program was a contentious issue and was ultimately deemed unconstitutional by the Supreme Court in National Federation of Independent Business v. Sebelius (NFIB).

As a result of the Supreme Court decision, the Medicaid expansion program was made voluntary for states. Currently, thirty-six states and the District have expanded their Medicaid programs in some form (Arkansas, Indiana, Iowa, Michigan, and Pennsylvania having partially expanded) seeing substantial gains in the level of uninsured. Another important consequence of NFIB is that the expansion of Medicaid is considered a different program than Medicaid itself, with the government providing a substantial and decreasing portion of funding (100 percent in 2014 gradually decreasing to 90 percent in 2020 and beyond). This elevated proportional financing has made the expansion contentious at the federal level, as a majority of Obamacare funding is now reserved for the expansion program, as well as at the state level, where expansion represents a larger share of revenues than anticipated, even when excluding administrative costs.

 How the Texas Ruling Will Affect State Medicaid Expansion

The uncertainty caused by the December decision from judge O’Connor raised alarm among beneficiaries and investors alike. The chaotic and disruptive implications of an affirmed ruling at the national level are immense and so too would be the ramifications at the state level. The wholesale removal of Obamacare would translate to a dismantlement of federally subsidized expanded Medicaid programs by those states that have chosen to adopt them. With the expansions already straining state budgets, many that would decide to retain them would likely severely reduce benefits and impose qualifying stipulations, such as the imposition of work requirements by Michigan and Maine recently approved by the Trump administration. The scale back or removal of such programs would leave millions uninsured and likely lead to a higher level of those not covered, as reductions in premiums seen in some states would be reversed in the anticipated volatile insurance market.

Most likely, conservative-leaning states that have expanded their programs would revert to pre-ACA levels, while many liberal states whose Democrat-leaning populace increasingly sees healthcare as a basic right would see massive budget shortfalls in attempting to preserve their existing programs. With the fiscal costs deterring some planned expansions and having left others reconsidering Medicaid entirely during past budget crises, affirming O’Connor’s ruling would likely irreversibly alter the landscape of health insurance in America. Alternatively, in some states with robust economies, such as California, the move may be seen as an impetus to adopt change from within and espouse an even more expanded Medicaid program or even a prototype of single-payer health care (an idea the Golden State has flirted with in the past).

While O’Connor’s ruling is anticipated to be reversed or remanded by the 5th Circuit Court of Appeals (with jurisdiction over pronouncements from O’Connor’s courtroom), should the overwhelmingly conservative court affirm, a liberal coalition of sixteen states led by California is certain to appeal. Furthermore, legal scholars are skeptical if the Supreme Court (despite its conservative majority) would affirm a ruling based on such faulty legal reasoning. With that being said, Republican lawmakers have not shied away from expressing their gratitude to the ruling, and Democratic lawmakers set to preside over the House of Representatives in January 2019 will likely attempt to secure legislation in order to preserve other at-risk portions of the ACA.